The Big Mac Index

The Big Mac Index

The Big Mac Index invented by The Economist is an informal way of measuring the purchasing power parity (PPP) between two currencies. Calculation of PPPs is based on the assumption that the dollar cost for a Big Mac in a particular country would be the same as in the United States.

The indicator is chosen by The Economist as a measure of PPP and is based on the fact that the ingredients used in the preparation of Big Mac are the same over the globe, and hence variation in dollar cost in any country is a direct measure on the valuation of the currency. The study also points to the fact that, some of the developing countries, purposely undervalues their currency, in an effort to be competitive in the global market.